Congress Nears Historic Reform of Medicare Payments

April 1, 2015 | Matt Reiter

For over a decade Congress has struggled to figure out a long-term fix for the flawed Medicare Sustainable Growth Rate formula (SGR). The SGR ties Medicare spending to performance of the economy as a whole. Over the years, the SGR has called for significant cuts in payments to providers in the Medicare Fee-For-Service (FFS) payment system. Currently, the SGR would implement a 21% reduction in FFS payments to providers. It is feared that such a significant pay cut would drive providers out of the Medicare program, which would negatively impact access to care for seniors.

Congress has regularly passed short-term fixes (17 to be exact) to avoid these cuts. However, Congress is on the precipice of passing legislation that would permanently repeal and replace the SGR. Negotiations between Speaker of the House of Representatives John Boehner (R-OH) and House Minority Leader Nancy Pelosi (D-CA) began in mid-March and quickly intensified. Not long after their talks began, they, along with other key House Members, introduced legislation to permanently repeal and replace the SGR. Their bill, H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015, was built largely on bipartisan, bicameral legislation that was introduced in 2014. This bill would transition Medicare FFS payments towards a value-based payment system and incentivize the development of new, value-based payment models. The bill also extends funding for the Children’s Health Insurance Program (CHIP) for two years, through September 30, 2017 and makes permanent a number of temporary Medicare provisions colloquially referred to as “extenders”. H.R. 2 passed the House of Representatives with overwhelming support by a vote of 392-37.

The reason Congress has struggled to come up with a long-term fix for the SGR is its cost. Rather than offset the entire cost of H.R. 2, Congress decided to only partially offset its cost. The total cost of H.R. 2 is over $200 billion but only $70 billion is offset. The offsets include raising premiums on high income beneficiaries, eliminating first dollar Medigap coverage, increasing the allowable tax amount on providers with tax delinquency from 30% to 100% and phasing in a scheduled 3.2% increase for hospital inpatient payments over six years. The remaining cost of the bill will be added to the Federal deficit.

The Senate did not act on the bill before adjourning for a two-week state work period. They return to DC on April 13th and have indicated that it is one of the first measures they will take up upon returning, although a vote has not officially been scheduled yet. There appears to be relatively broad support in the Senate for this measure. However, it is unclear if the Senate will allow amendments to be brought up or if the Chamber will vote on the House bill in a straight, up or down vote. If the bill is passed un-amended, it can go directly to the President for his signature. President Obama stated that he supports the bill and would sign it. If the Senate passes an amended bill, the two Chambers would have to form a Conference Committee to iron out the differences between the two.

Because the Senate has yet to act, the current short-term SGR patch that was passed in 2014 expired on April 1st. This means the FFS claims submitted to Medicare with a date of service on or after April 1st are subject to the 21% cuts until Congressional action is taken to either pass a permanent fix or another short-term fix. The Centers for Medicare and Medicaid Services (CMS) sent an email to providers and stakeholders that they will temporarily hold claims submitted on or after April 1st. Existing CMS policy is that it does not pay Medicare claims sooner than 14 days. Therefore, the 21% cuts technically do not take effect until April 14th. CMS plans to announce additional information to providers and stakeholders by April 11th. Congress could include a retroactive fix for these cuts.

With the Senate returning on the 13th, there is still time to avoid the 21% cuts, but not much. If the Chambers have to go to Conference, the process could go beyond April 14th. A permanent fix of the SGR has been a priority for healthcare industry stakeholders for a long time. This is the closest any effort has come to a permanent repeal.